Airlines will lose $9bn (£5.7bn) this year, nearly double previous forecasts, as carriers fight to stay afloat in the "most difficult" trading conditions they have ever faced, the industry's leading body has warned.
Buffeted by a collapse in business traffic, falling fares and the threat of resurgent fuel costs, the industry is expected to come close to matching last year's losses of $10.4bn, said the International Air Transport Association (Iata). Revenues are expected to fall by 15% this year, a decline of $80bn, as passenger numbers fall and airlines slash fares to entice a dwindling amount of potential customers. As a result, the forecast industry loss this year has nearly doubled from $4.7bn to $9bn.
Giovanni Bisignani, Iata chief executive, said the industry's future depended on a "drastic" reshaping by governments, through lower taxation and fewer ownership guidelines, and by mergers between airlines.
"There is no modern precedent for today's economic meltdown. The ground has shifted. Our industry has been shaken. This is the most difficult situation that the industry has faced," said Bisignani.
The Iata boss is renowned within the industry for his apocalyptic outlooks, prompting a gentle rebuke from the chief operating officer of Airbus, John Leahy, who said the long-term outlook for aircraft manufacturers remained strong.
However, Bisignani's comments were backed by leading airline executives this morning at the Iata annual general meeting in Kuala Lumpur. Willie Walsh, British Airways chief executive, said "every" airline was in a fight for survival.
"Everyone is fighting for survival, if you look at their financial performances," said the BA boss, whose airline lost a record £401m last year. Asked if he agreed with the assessment of arch-rival and Virgin Atlantic co-owner Sir Richard Branson, who said two major carriers could go bust this year, Walsh joked that he was unlikely to reach an accord with the tycoon on anything. "If he said two I am going to disagree with him." He added: "It is quite possible that you could see a number of airlines fail, with oil prices rising and no sign of the economic environment improving. There are a lot of airlines that could fail."
Pointing to Ryanair's first full-year loss in 20 years, announced last week, Walsh said "all airlines" were encountering difficulties. Last year more than 30 airlines collapsed, including Silverjet and XL Airways in the UK, following a spike in fuel costs that saw the price of oil nearly breach $150 a barrel.
Virgin Atlantic, one of BA's biggest rivals on the transatlantic route, said summer bookings would be lower than in recent years. Steve Ridgway, Virgin Atlantic chief executive, said the carrier's premium economy cabin - a halfway house between economy and business class - was proving to be a "recession buster". However, he said bookings for the upper class cabins were being hit.
"We have maintained load factors [the proportion of seats sold per flight] in premium economy and economy. But upper class load factors are down," he said. Ridgway added that he did not expect a large number of airline bankruptcies this year following the demise of more than 30 carriers in 2008.
"I think it's a fight for survival but the airlines that were most vulnerable have gone."
Tony Tyler, chief executive of Hong Kong-based Cathay Pacific, said the industry was facing "the most difficult trading conditions any of us can remember."
The biggest blow to long-haul carriers is the slump in profitable first and business class bookings, which have fallen by around 20% since the start of the year and pitched many carriers into loss-making territory. BA, for instance, relies on business passengers for more than 50% of its revenues. "Demand for first and business class has reduced significantly," said Tyler.
Bisignani said businesses were slashing travel budgets in response to the downturn: "Our customers don't have confidence. They need to reduce debt and that means less cash to spend. Business habits are changing and corporate travel budgets have been slashed. Video conferencing is now a stronger competitor."
Alan Joyce, the chief executive of Australian carrier Qantas, took a more optimistic view, saying that business and first class bookings would stage a recovery. "These businesses go through cycles. We have seen some premium markets in the past go through decline. But it does come back." Cautioning against the gloomiest predictions for the industry, he added: "If you put 10 economists in the room you would have 10 different opinions about what is going to happen." Asked if Qantas was still considering a merger with BA, after talks were aborted last year, Joyce said the airline was not mulling a deal: "We are focused on our core business." Walsh also ruled out re-starting talks.
In his annual address to the industry, Bisignani also accused the British government of using air passenger duty to pay off MPs' expenses, in the latest indication that the scandal has acquired global fame. "It is unacceptable that money collected from our responsible industry in the name of the environment is being used by an irresponsible government to pay inflated MP expense claims or bail out banks."
Source : Guardian
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